Definition of Industry | Judgement Summary

Questions framed by the Court

By an order dated 16 February the Court framed four broad questions: 

1. Whether the test laid down in paragraphs 140 to 144 of Justice V.R. Krishna Iyer’s opinion in BWSSB correctly interpreted Section 2(j), and whether the Industrial Disputes (Amendment) Act, 1982 and the IR Code had any legal impact on that interpretation; 
2. Whether social welfare activities, schemes or other enterprises undertaken by Government departments or their instrumentalities could constitute “industrial activities” under Section 2(j); 
3. What State activities would be covered by “sovereign function” and whether they would fall outside Section 2(j); 
4. Any other issue that might arise during the hearing.

Whether the Reference required reconsideration of Bangalore Water Supply

CJI Surya Kant’s opinion held that the Reference had been validly made and could be answered on merits. The Bench held that the procedure followed in referring the correctness of a seven-Judge Bench decision to a nine-Judge Bench was consistent with the principles in Central Board of Dawoodi Bohra Community v State of Maharashtra (2004). It also held that stare decisis did not prevent reconsideration by a larger Bench where the established procedure for such reconsideration had been followed. 

Justice Nagarathna held that the Reference was “uncalled for”. She found no conflict between Chief Conservator of Forests v Jagannath Maruti Kondhare (1995) and State of Gujarat v Pratamsingh Narsinh Parmar (2001) warranting reconsideration of BWSSB. In her view, the two judgements could be reconciled on their facts and the five-Judge Bench in Jai Bir Singh had proceeded on an incorrect understanding of the supposed divergence.

She further provided ten reasons for holding that the Reference need not be answered:

1. The ID Act had been repealed, including Section 2(j), whose interpretation was under reconsideration.
2. The IR Code had come into force with a new definition of “industry” in Section 2(p).
3. Bangalore Water Supply had held the field for nearly 48 years.
4. The points of convergence and divergence in the seven-Judge Bench did not dilute the majority ratio on the definition of “industry”.
5. Any pronouncement on Section 2(j) could cast a shadow over the interpretation of “industry” under Section 2(p) of the IR Code.
6. The application of the ratio in BWSSB to different activities could not, by itself, justify reconsideration of the judgement.
7. The interests of employers, workmen and industrial activity required the interpretation in BWSSB to continue to govern pending cases under the ID Act.
8. The long operation and acceptance of BWSSB weighed against reopening its interpretation.
9. Reconsideration could result in pending matters being unsettled or remanded, producing uncertainty in industrial adjudication.
10. The State performs many functions which are not stricto sensu sovereign, and the sovereign-functions issue therefore did not warrant reconsideration of the existing interpretation.

Justice Narasimha held that there was “no illegality in the procedure adopted” in referring BWSSB to a nine-Judge Bench and that the procedure did not violate Central Board of Dawoodi Bohra Community v State of Maharashtra (2005). He held that an authoritative determination of the meaning of “industry” was justified when the Reference was made. Following the repeal of Section 2(j), however, he held that such a determination had become unnecessary. The BWSSB ratio remained relevant to disputes pending under the repealed ID Act.

Justice Dipankar Datta and Ujjal Bhuyan dissented from the majority opinion, rejecting the reference as “not necessary.” In his dissent, Justice Datta noted that “institutional credibility lies in respecting finality” of decisions. Referring to Justice Gajendragadkar’s opinion in Keshav Mills Co. Ltd. v CIT [7-J] (1965), Justice Datta held that a reference to a larger bench cannot be made merely because there exists an alternative view in contrast to the decision of the Court. Jai Bir Singh v State of Uttar Pradesh (2005) made a reference to a larger bench in contrary to established principles, as it neither identifies a “manifest error” nor inter-bench conflict. 

In his opinion, Justice Bagchi noted that the reference to the nine-judge Bench was validly made. He notes that the reference arose from the inconsistencies between the judgements in Chief Conservator of Forests v Jagannath Maruti Kondhare (1995) and State of Gujarat v Pratamsingh Narsinh Parmar (2001). Justice Bagchi relies on the Dawoodi Bohra decision, which was later affirmed by a seven-judge bench in Aligarh Muslim University v Naresh Agarwal (2024). In Dawoodi Bohra, a two-judge Bench noted that a five-judge bench verdict in Sardar Syedna Taher Saifuddin Saheb required a reference to a larger Bench. As per Justice Bagchi, the challenge by a smaller Bench to the decision of a larger Bench fell within permissible limits as the Chief Justice appropriately placed the matter before the Bench of nine-judges. 

Does the Bangalore Water Supply test hold up?

CJI Surya Kant held that the essential framework of the Triple Test had “stood the test of time”, although some of its constituent elements and accompanying guidelines could be refined.

The reformulated test requires:

1. a systematic activity;
2. organised through cooperation between employer and employee; and
3. production, distribution or provision of goods or services possessing a “discernible commercial character”, analogous to trade or business and calculated to satisfy material human wants and wishes.

He retained the proposition that absence of profit motive or gainful objective is irrelevant. He also retained the functional focus of the inquiry, with emphasis on the nature of the activity and employer-employee relations.

Justice Nagarathna examined the separate opinions in BWSSB and held that there was a clear majority on the Triple Test. The areas of divergence in Justice Jaswant Singh’s opinion, for himself and Justice Tulzapurkar, did not dilute that ratio. She also noted that the seven-Judge Bench was unanimous in overruling Safdarjung Hospital.

Justice Narasimha traced the uncertainty surrounding Section 2(j), but did not undertake a fresh substantive interpretation after its repeal. He held that the Bangalore Water Supply ratio continued to govern disputes arising under the repealed ID Act.

Justice Datta held that the triple test laid down in BWSS represents the correct law and does not require reconsidering. The five-judge Bench decision in Jai Bir Singh did not offer an alternative workable solution to the triple test. The opinion further noted that the inclusive statutory framework of Section 2(j) of the ID Act supports the triple test. 

Justice Bagchi notes that although the ID Act preceded the Constitution, the Constitution later institutionalised the welfare-oriented schemes of the statute. His opinion notes that any interpretation of Section 2(j) of the ID Act must be consistent with the constitutional promise of dignified life under Articles 38, 39 and 43. Since the triple test carves out a just and proper exception to bring casual and non-systematic activities under the ambit of industry, Justice Bagchi holds that the test must not be interfered with. 

Whether commercial character should be added to the test

The CJI held that industrial activity could not be “wholly divorced from its commercial character”. He held that some distinction based on the commercial character of the activity was “necessary and unavoidable”. The words “undertaking”, “service” and “calling” had to be understood in their statutory context and could not be expanded so far that they became detached from “business”, “trade” and “manufacture”. He clarified that commercial character was not the same as profit motive. An activity could possess commercial character even without a profit-making objective.

Justice Nagarathna did not treat commerciality as an additional requirement of the Triple Test. In examining Justice Jaswant Singh’s opinion, she considered his proposal to restrict “industry” to activities undertaken “on commercial lines by private entrepreneurs” and questioned what independent work commerciality would perform if profit motive was otherwise irrelevant.

Justice Narasimha did not formulate a separate commerciality test. His conclusion was that, after repeal of Section 2(j), there was no need to formulate a new authoritative test for the repealed provision.

In his dissent, Justice Datta declined that commercial character must be added to the test, holding that to base the test on commercial lines, determining whether goods and services are involved in a commercial way, would defeat the purpose of the statutory scheme of the ID Act. 

Justice Bagchi supplemented Justice Datta’s opinion, holding that production of goods and services for the satisfaction of human needs are not restricted to activities which run on commercial lines. 

Charitable institutions

CJI Surya Kant held that an organisation did not cease to be a trade or business merely because philanthropy formed part of its stated purpose. The nature and character of the activity remained the relevant inquiry.

Justice Nagarathna noted that the seven-Judge Bench did not speak with one voice on charitable institutions. Justice Iyer’s “trichotomy” treated the first two categories as industries and excluded only the third, where the establishment was founded on “philanthropic devotion” or “missionary zeal” rather than a conventional employer-employee relationship. Justice Chandrachud disagreed with excluding charitable institutions altogether. Justices Jaswant Singh and Tulzapurkar took a narrower view and also excluded the second category.

Justice Datta expressed concerns over the exclusion of charitable institutions from the definition of industry. In his dissent, he noted that a technician is not concerned whether a hospital is run for charity or profit. It cannot, however, be contended that the technician is not a “workman” covered under the ID Act. 

Justice Bagchi suggested that services rendered by “purely” charitable institutions can be excluded from the definition of industry. However, as long as the nature of work involves an employer-employee relationship, wages paid for work and organised and systemic activity, the charitable nature of the organisation will be irrelevant.

Whether Government welfare activities constitute “industry”

CJI Surya Kant held that the identity of the actor was not determinative. Governmental and statutory undertakings had to be examined according to the nature and character of the activity. Welfare activities and economic ventures undertaken by Government or statutory bodies were not excluded merely because the State performed them.

Justice Nagarathna held that social welfare activities and schemes undertaken by Government departments could constitute “industrial activities” depending on their nature. The fact that the Government undertook an activity did not, by itself, exclude it from Section 2(j). The nature of the activity, rather than the identity of the person undertaking it, was relevant.

Justice Datta notes that government activity must be classified keeping in mind the role of the State in the promotion of welfare activities. 

Further, Justice Bagchi writes that government departments and their instrumentalities are not to be excluded from the definition of industry solely because of their public, charitable or welfare characteristics. He notes that excluding government departments from the ambit of industry will leave a plethora of workmen, engaged in undertakings of the State, without a remedy. 

What constitutes a sovereign function?

The CJI retained the sovereign-functions exception. Sovereign functions could fall outside Section 2(j), but welfare activities and economic ventures undertaken by Government or statutory bodies were not automatically sovereign merely because the State performed them. Where substantially severable units within departments discharging sovereign functions themselves constituted industries, those units could fall within Section 2(j).

Justice Nagarathna held that the State performs several functions which are not stricto sensu sovereign. She therefore did not treat the identity of the State as determinative. The nature of the activity remained the relevant consideration.

Justice Datta’s dissent relied on the interpretation of “sovereign functions” in State of Bombay v Hospital Mazdoor Sabha (1960), where it was held that the exclusion of sovereign functions of the State from the definition of industry is unwarranted. Referring to the First Schedule of the ID Act which includes industries such as “Defence Establishment” (Entry 8), “Fire Brigade Service” (Entry 10) and “Indian Security Press” (Entry 12), among others lends credence to the fact that the legislature did not exclude sovereign functions from the definition of industry. 

Justice Bagchi notes that sovereign functions are not excluded within the ambit of Section 2(j) of the ID Act. He opines that sovereign functions of the State, for the purpose of defining industry, cannot be confined to a narrow-checklist. Relying on Justice Krishna Iyer’s judgement in BWSSB, Justice Bagchi notes that welfare, service and organised administration under the Government cannot be kept outside the purview of industry. His dissent notes that sovereignty must not be traced to the structure but to the nature of the activity.

The dominant nature test

CJI Surya Kant held that the dominant nature test required no change. Where an undertaking carried on several activities, the Court was to examine the predominant nature of its services and the integrated character of its departments.

Justice Nagarathna found no reason to reconsider the dominant nature test merely because difficulties had arisen in applying it to particular factual situations. She retained the approach in BWSSB.

Justice Narasimha did not formulate a new dominant nature test. Pending cases under the repealed ID Act were to be decided according to the BWSSB ratio rather than by creating a new set of principles applicable only to those cases.

While Justice Datta defined the dominant-nature test in his dissent, he did not opine whether the dominant nature test needed to be reformulated. 

Justice Bagchi, however, held that the dominant-nature test, ensured that the definition of industry would not include casual or non-systemic activities. A venture which, by its dominant nature, remained an unorganised venture would not be classified as an industry. The test prevented pious and altruistic endeavours from being classified as industry. 

The 1982 amendment

The CJI held that the Industrial Disputes (Amendment) Act, 1982 had never been brought into force and therefore had no operative legal effect. He declined to examine its correctness, applicability or consequences.

Justice Nagarathna noted that the 1982 amendment remained unnotified and therefore had not displaced the interpretation in BWSSB. Its non-enforcement formed part of her reasons for declining to reconsider the 1978 judgement.

Justice Narasimha did not undertake a fresh examination of the 1982 amendment. His conclusion was that, following repeal of Section 2(j), a new authoritative interpretation of the repealed provision was unnecessary.

The opinion by Justice Datta stated that the 1982 Amendment to Section 2(j) of the ID Act , which narrowed down the scope of Industry, was never enacted.

Referring to the amendment to the ID Act in 1982, Justice Bagchi held that it cannot inform the interpretation of Section 2(j) of the ID Act since it would be wrong to rely on an inert law to reconfigure the ratio in BWSSB.

The Industrial Relations Code, 2020

CJI Surya Kant held that the IR Code was an “independent legislative enactment” and had to be interpreted according to its own text, scheme and object. He expressly refrained from examining the definition of “industry” under the Code and held that Bangalore Water Supply should not become its “sheet anchor”.

Justice Nagarathna held that Section 2(j) could not be reconsidered through the prism of Section 2(p) of the IR Code on a hypothetical basis. She held that the new Code had its own statutory framework and that its enactment did not require reconsideration of BWSSB.

Justice Narasimha held that Section 2(p) of the IR Code must be interpreted “on its own text and in its context alone”. He held that the new provision should be freed from the “bondage” of the Bangalore Water Supply ratio and from any new definition formulated by the nine-Judge Bench.

In his opinion, Justice Datta opined the wide-interpretation laid down in Bangalore Water Supply continued to remain in practice over decades until its replacement by the 2020 Code. He noted that the very fact renders the reconsideration of the definition of industry in Bangalore Water Supply obsolete. 

Justice Bagchi held that the final outcome of the ratio in BWSSB shall be confined to disputes pending under the repealed law. Further, the 2020 Code shall be independently interpreted. 

What happens to pending disputes?

CJI Surya Kant clarified that the reformulated Triple Test was not intended to displace the governing legal position in pending proceedings. Matters pending under the ID Act could therefore continue to be adjudicated according to the BWSSB Triple Test. Judgements, awards, settlements and determinations that had attained finality would remain undisturbed.

Justice Nagarathna held that the interpretation of Section 2(j) in BWSSB should continue to govern pending disputes under the repealed ID Act. She considered this necessary in the interests of employers, workmen and industrial activity and to avoid uncertainty in proceedings already instituted under the old law.

Justice Narasimha rejected the creation of a “third category” of principles applicable only to pending cases. Thousands of cases had already been decided under Bangalore Water Supply, and he found no justification for modifying the ratio only for cases that remained pending. 

 In his dissent, Justice Datta writes that all pending references arising out of the industrial dispute, made under the ID Act, must be taken to its logical conclusion in accordance with the interpretation of “industry” in BWSSB. 

Justice Bagchi notes that all parties who have adjudication of their matters pending under the ID Act have “travelled substantial distances”. Since the judgement in BWSSB has kept the doors of adjudication open for several decades, Justice Bagchi opines, it must not be now closed.